IPO Note- Prataap Snacks Limited
“Prataap Snacks is one of the top snack food companies in India and with 27% revenue CAGR between FY13-FY17, it is also one of the fastest growing companies in its sector. It has three product lines i.e. Extruded Snacks, Chips and Namkeen and has brands such as Chulbule and Yellow Diamond. It has 3 manufacturing facilities, 218 distributors and 3,500 super stockists.
Outlook and Valuation: At 202x of its FY17 earnings, the issue is richly valued at upper end of its price band i.e. Rs 938. Ignoring its lower profitability in FY17 and valuating the issue on FY16 EPS still yields a high P/E of 73.0x. FMCG companies commanding such high P/Es have a very strong profitability and returns profile such as Britannia (which is not an exact peer due to size and product portfolio). Its peer in exactly same industry i.e. DFM Foods, also has good margins (10% in FY17) and handsome return profile (~20%). For Prataap to justify this high valuation, remarkable improvement in profitability is required which may come at the cost of lower growth. Considering this, we rate Prataap Snacks as Neutral.”